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General

Akruti: The Mega Short Squeeze

Akruti has been removed from the NSE F&O segment, and has been placed in the trade-for-trade segment.

Limited Members are requested to note that the said security shall consequently not be available in rolling segment (series: EQ). In view of the same, the above mentioned security will be available in the trade for trade segment from March 27, 2009 (Friday) at a price band of 5%.

Further, the scrip will be excluded from equity derivatives segment. Thus, fresh month contracts will not be introduced for the expiry month June 2009 on the expiration of March 2009 contracts. All existing contracts i.e. contracts with expiry dates April 30, 2009 and May 28, 2009 will expire on March 26, 2009. Accordingly, no futures and options contracts will be available in the underlying AKRUTI for trading from March 27, 2009 onwards. The methodology for position adjustments shall be separately intimated by NSCCL.

This is amazing. Yesterday, the Akruti April contract traded at 1823, a substantial discount to the March contract which was at 2215.

akruti2

And of course, the price has been going up, in dramatic fashion, over the last fortnight, scaling from 900 in the first week of March to over 2200 yesterday.

akruti

This seems to be a short squeeze of epic proportions. Akruti has a small free float and the market wide limit for F&O is only 13 lakh shares. When 95% of that limit was breached, no fresh F&O contracts could be created – meaning, no fresh shorts. Long operators could then easily push up the price of the stock – given the small free float – and that would increase the price of the future; that would push the losses on the short positions MTM, and force them to buy back, at any price.

India’s Volkswagen of sorts. Also check out how this is happening; Timamo has a very interesting post on delivery volume drops, from over 50% down to 10% or less. Meaning, not much in terms of positional trading, and therefore, likely to be driven by operators.

Given this drama will continue till Thursday, what happens? SEBI will probably ban someone for two months or some stupid period like that. Those people will take a nice holiday and come back. The shorts will be dead, and rightfully so; a squeeze is normal market behaviour, because it’s not price manipulation, people just aren’t selling enough. More on this later.